In a new video interview with Profit & Loss Fred Allatt, managing director — FX sales at INTL FCStone Markets, details how his firm has adapted its model for accessing FX liquidity.
In the interview Allatt reflects on his 15 years in the FX industry, noting that the market has changed significantly in terms of the amount of electronic trading taking place during this period of time. And when it comes to the liquidity available in the market, he says that this shift towards electronic trading — which has been accompanied by the development of aggregators, ECNs and transaction cost analysis (TCA) tools — has been very positive for INTL FCStone.
But whereas traditionally the firm operated on the basis that the more liquidity it could access the better spreads it would be able to get and therefore the better service it could provide to its customers, Allatt says that this is no longer the case. Instead, he explains that observing how liquidity functions in today’s FX market led to the conclusion that it is more effective to be selective and strategic when picking liquidity providers.
“We’ve changed that model over the past twelve months,” says Allatt. “We feel that we are in a better position to strategically partner with, say, eight to ten liquidity providers and use them as our main source of market data, analytics and then apply that to our own methodology.”
He adds: “This doesn’t mean that we don’t have more liquidity providers, but that the ones beyond that eight to ten are typically strategic liquidity providers in a particular currency. To give one example, we’re very well known for our pricing in Brazil and Colombia so we have strategic relationships with banks in those regions that help us differentiate ourselves to other counterparties.”
Click below to watch the full interview, in which Allatt talks in more detail about liquidity trends in the FX market, why FCStone is focusing on distributing its own prices and where the recent acquisitions made by the firm fit into its broader business strategy.